What Gave Regulation Such a Bad Name

Way back in the 70’s Jimmy Carter and his advisors (specifically Alfred Kahn)  figured out that in certain cases government oversight and control over some industries was producing gross inefficiency.  This lead to their deregulation of the airline industry and later the trucking industry.  Believing this to be success libertarians were heard to yell “I told you so” and our business culture embraced all aspects of deregulation including disinterest in enforcing anti-trust law.  The stock market loved  all the new buyouts and new entrants into industries that used to be restricted.  The telephone industry was the next big whale to be set free, and all was good.

The problem is that regulation also means law enforcement.  Laws against pollution dumping, political payoffs, fraudulent accounting and illegal alien employment all came under indictment.  Laws that protect worker safety, guarantee a minimum wage, or require proper and complete product information were looked upon as unnecessary- just burdensome paperwork.  Many companies avoided these laws by moving many workers to countries without such laws.  No one cared- it was good for profits.

Then along came Enron.  This was a perfect case study of how a company can avoid every regulatory rule protecting shareholders from excessive hidden leverage, losses and taxable income.  It also exposed the crazy new compensation schemes where a company could go bust while certain traders kept huge bonuses.  There are other examples but this one was in the finance world that had become the primary business of the US economy after it moved its manufacturing industries offshore.

Thus when corruption ran amuck in the housing finance industry  all the “regulators” had been well trained to look away.  No one had learned anything from Enron. The SEC was effectively closed.  Everyone, even most democrats, still describes regulation as inherently evil as though Alfred Kahn were still in the White house.

Is it so hard to differentiate between excessive government control and proper enforcement of appropriate necessary laws?

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